Flipping homes is an extremely lucrative enterprise, especially in a market with fast rising home prices. Areas of the Bay Area, Napa Valley, Southern California and even the Inland Empire have seen rapidly appreciating home values in recent years. Flippers can take advantage of this trend to make smart, leveraged investments that allow them to make tens or hundreds of thousands of dollars in only a few months. However, there is still some risk in every transaction. There are a few things that can be done to reduce the risk.
1. Get a partner
First and foremost, sharing some of the financial burden is an easy way to reduce your downside risk. Allow your partner to put in most of the initial deposit money and earn off the sweat equity of managing the entire process. Perhaps you can share the profits 50/50 after the sale. However, your risk is low because you don't put in as much.
2. Pay contractors on closing
Flippers that have long, established track records can work with trusted contractors to improve cash flow and reduce risk. These contractors take a small upfront fee but take the bulk of their payment once the sale actually closes. This allows you to reduce your upfront expenditure yet still get premium quality and craftsmanship. The more contractors you have with this situation, the better.
3. Invest in stable areas
Some regions or neighborhoods look like good bets for the long term, as they slowly improve in price. For many years, all of Oakland was considered a poor investment but it has since turned into a dynamic opportunity. Flippers do not need to make those type of long-term investment projections. Rather, they are only investing for a few months. So flippers might want to buy a dilapidated place in the most transportation friendly or stable parts of Oakland, but not the areas that still need a few more years of growth.
Trust Deed Capital is a leading provider of financing for fix and flip properties. For more information, please contact us.